TMI Blog2013 (11) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... i dt.11.10.2012 pertaining to A.Y. 2009-2010. As common issues are involved in both these appeals, these appeals were heard together and dispose of this common order for the sake of convenience brevity. ITA No 7034/Mum/2012 2. The assessee has challenged the correctness of the order of the Ld. CIT(A) by raising following three grounds of appeal: 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in holding that the amount of ₹ 5 crore received from M/s. Thermo Electron LLS India P. Ltd. by the appellant was a revenue receipt taxable under the head profits and gain of business . He failed to appreciate that when admittedly the appellant is not at all carrying on any business in the previous year, there is no question of any chargeability under the head profits and gains of business , as carrying on business is a sine qua non for applicability of s.28. 2. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the payment of ₹ 5 Crores was compensation for the total destruction of a source of income, and as such was a capital receipt and not a revenue receipt. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for loss of agency was a revenue receipt whereas compensation received for refraining from carrying on competitive business was a capital receipt. It was claimed by the assessee that on the facts of the present case, the receipt is a capital receipt hence there is no question of bringing it to tax u/s. 28(va) of the Act. 3.2 The submissions of the assessee were carefully perused by the AO who was of the opinion that the 'Non-compete fees' received by the assessee is clearly taxable u/s. 28(va) of the Act and accordingly rejected the treatment of ₹ 5 crores as Long term Capital gains as claimed by the assessee and treated the said receipts of ₹ 5 crores as 'Non-compete fees' under the head 'Profit or Gain from business or profession'. 4. The assessee strongly agitated this matter before the Ld. CIT(A) and strongly contended that the assessee himself was not carrying on any business whatsoever and reiterated that it is a basic condition for taxability under the head 'Profit Gain of business that the assessee must be carrying on business. It was further pointed out by the assessee that Sec. 28(va) does not indicate that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated the stand of the assessee that it is a primary condition that the assessee must carry on the business during the previous year only then the profits and gains will be taxable under the head 'profits and gains of business'. The Ld. Counsel further argued that Sec. 28(va)(a) has been inserted by the Finance Act, 2002 w.e.f 1.4.2003 and reference is only to any sum whether received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business. The Ld. Counsel thus concluded that as the main provision of Sec. 28 and also Sec. 28(va) refers to carrying on of business and as the assessee has not carried out any business, therefore there is no question on the taxability of Non compete fee under the head profits and gains of business. On the contrary, it is a capital receipt and has been rightly returned under the head capital gains by the assessee in his return of income. The Ld. Counsel filed a Paper book relying upon the decision of ITAT in the case of Mrs. Hami Aspi Balsara (supra), ACIT v. Savita Mandhana in ITA No. 3900/Mum/2010, Dr. B.V. Raju (supra), Guffic Chem (P.) Ltd. v. CIT 32 ITR 602 (SC) and John D Souza Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an aggregate period of four years for the entire period shall, without the prior written consent of the other party, directly or indirectly, solicit any employee of the other party to work in any way whatsoever for that party or its affiliates or to terminate an existing relations with the employee party. 10. Subsequent to this agreement on 2.6.2008, the purchaser company M/s. Thermo Electron LLS India Pvt. Ltd., entered into a separate Non compete and non Solicitation Agreement with the assessee and also with his some Mr. Anurag Toshniwal and agreed to pay ₹ 5 crores to the assessee and ₹ 2 crores to his son. The entire dispute relates to this receipt of ₹ 5 crores by the assessee. Before proceeding further, let us first see the provisions of Sec. 28(va) as inserted by the Finance Act 2002 w.e.f. 1.4.2003 Sec. 28[(va) any sum, whether received or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denying, that carrying of business is a necessity even on that note, it has to be kept in mind that the transferor company Chemito Technologies Pvt. Ltd has only transferred one of its division to M/s. Thermo Electron LLS India Pvt. Ltd. and not the entire business which negates the submission of the Counsel for the assessee. The ITAT Hyderabad Special Bench had the occasion to deal in similar issue in the case of Dr. B.V. Raju (supra) wherein the Tribunal was seized with the situation which was prior to the amendment of Sec. 28. Therefore, the Tribunal has held that prior to the amendment, Non compete fee was regarded as capital receipt. However, the Tribunal at para-38 of its order has emphatically made it clear that w.e.f. 1.4.2003, a new sub-sec (va) is inserted in Sec. 28 to bring in the Non compete fees within the purview of Sec. 28 to make it taxable in the hands of the recipient of such income. Hon'ble Supreme Court in the case of Guffic Chem. (P.) Ltd. (supra) held that payment received as Non Compete fee under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide Finance Act, 2002 w.e.f. April 2003 that receipt b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompete and Non solicitation agreement'. Further in the case of Mrs. Hami Aspi Balsara (supra), the transaction was clearly covered by the exemption provided u/s. 28(va) wherein it has been provided that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on business, which are chargeable to tax under the head 'capital gain' would not be taxable as profits and gains of business and since in that case, the transfer of shares were subjected to tax under the head capital gains. Therefore, the Tribunal held that Sec. 28(va) is not applicable. However, in the present case, there is no transfer of any capital asset therefore there is no question of the applicability of the exemption provided in sec.28[va] therefore the receipt is rightly being taxed under the head capital gains. 16. In the result, the appeal filed by the assessee is dismissed. ITA No. 7032/Mum/2012 17. The issues involved are identical with the issue in ITA No. 7034/M/12, though quantum may differ, therefore, on similar lines, similar reasons, the appeal filed by the assessee in ITA No. 7032/M/12 for assessment year 2009-2010 is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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